Bargaining with Linked Disagreement Points

In the context of bilateral bargaining, we deal with issue linkage by developing a two-issue cooperative bargaining model. In contrast to the traditional Nash bargaining literature, the axioms we propose focus on the role of the disagreement points. We characterize a new solution that we call the <italic>Linked Disagreement Points (LDP)</italic> solution, which explicitly links the players' bargaining powers on each issue. We then weaken our axioms in turn, and a family of bargaining rules stands out: the <italic>Equal Net Ratio Solutions</italic>. These solutions point to Pareto-efficient outcomes such that the relative gains for players are equal across issues. We discuss our results in light of international trade and environmental negotiations, which are often put on the bargaining table in a linked fashion.